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Returns Cycle - Real Estate On Top... What's next?

In Q3, 2019 and Q4, 2021 real estate was on top. It move around like all asset classes. Watch what happens - when real estate was on top last, it moved one spot from the bottom the next quarter, and again in 2021, the next quarter isn't so good. This is one of the most powerful cycles and dynamics to understand, and it's really common sense.

You run a marathon and finish your quarter working harder than ever before, you just have your best quarter. Congrats. Now do it again! You might laugh, you just gave it your all. It is rare to be able to stay on top for extended period, but Commodities just did that - as the top performer for 4 of the last 5 quarters. This was driven by larger macro events, but would you want to invest heavily in commodities now? Is it likely they can continue the top spot?

Real estate as an asset class is all real estate, but as we say all real estate is local, and the most local being your house. The US is now ranked as the 7th highest risk for a correction. Again, this isn't about fear mongering, it is simply looking at the facts as they present and the making good decisions based on the facts.

What keeps a solid floor under our real estate locally is 'rent equivalent'. Shelter accounts for a 32% of CPI — and was up 0.6% in June . "This includes rent of primary residence (a.k.a., tenants’ rent), which accelerated to 0.8% (highest since April 1986), and owners’ equivalent rent (i.e., how much a homeowner would have to pay to rent their currently owned home), which accelerated to 0.7% (highest since August 1990)."

TIP: You don't need to understand it all, no one can, but have multiple apertures in your work. If you are knee deep in closing conditions and solving for a loan closing, you also want to have a wider aperture of the global market dynamics that impact your business. Throughout the day try to move as needed from the macro to the micro and you'll never get lost in the forest of what's really going on.

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